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Although disturbed sleep is a prominent feature of schizophrenia, its relation to the pathophysiology, signs, and symptoms of schizophrenia remains poorly understood. Sleep disturbances are well known to impair cognition in healthy individuals. Yet, in spite of its ubiquity in schizophrenia, abnormal sleep has generally been overlooked as a potential contributor to cognitive deficits. Amelioration of cognitive deficits is a current priority of the schizophrenia research community, but most efforts to define, characterize, and quantify cognitive deficits focus on cross-sectional measures. While this approach provides a valid snapshot of function, there is now overwhelming evidence that critical aspects of learning and memory consolidation happen offline, both over time and with sleep. Initial memory encoding is followed by a prolonged period of consolidation, integration, and reorganization, that continues over days or even years. Much of this evolution of memories is mediated by sleep. This article briefly reviews (i) what is known about abnormal sleep in schizophrenia, (ii) sleep-dependent memory consolidation in healthy individuals, (iii) recent findings of impaired sleep-dependent memory consolidation in schizophrenia, and (iv) implications of impaired sleep-dependent memory consolidation in schizophrenia. This literature suggests that abnormal sleep in schizophrenia disrupts attention and impairs sleep-dependent memory consolidation and task automation. We conclude that these sleep-dependent impairments may contribute substantially to generalized cognitive deficits in schizophrenia. Understanding this contribution may open new avenues to ameliorating cognitive dysfunction and thereby improve outcome in schizophrenia.